Bearish bias for Nigeria equities to persist as CBN holds rates

The current bearish feeling for Nigerian equities market looks good to continue following Tuesday’s outcome of the two-day Monetary Policy Committee (MPC) meeting.

At the end of the policy meeting, the MPC members voted to hold all policy variables at current levels. The market closed in the negative region on Tuesday despite Monday’s positive close.

Specifically, the committee decided to: retain Monetary Policy Rate (MPR) at 11.5percent; maintain the asymmetric corridor around the MPR at +100/-700bps; retain the Cash Reserve Ratio (CRR) at 27.5percent; and retain liquidity ratio at 30percent.

The above MPC decision was made in light of Nigeria’s fragile exit from recession, progress with vaccinations and the recent rally in oil prices in the face of the unabating rise in inflation and exchange rate divergence.

Read Also: Considering inflation, CBN holds benchmark interest rate at 11.5%

Analysts at United Capital said the implication of the MPC decision includes among others that demand for short term bills will persist while investors continue to systematically exit long-dated bonds, adding that bearish bias for equities will persist.

Stock trading on the Nigerian Exchange (NGX) Limited closed slightly in red on Tuesday March 23 (All Share Index decreased by -0.05percent), pushing the negative return year-to-date (ytd) higher at -3.89percent.

The market’s benchmark performance indicators –the All Share Index (ASI) and market capitalisation increased from 38,722.87 points and N20.259trillion to 38,704.97 points and N20.250trillion respectively.

Investors lost N9billion at the close of trading. Livestock Feed Plc led the laggards after its share price decreased from N2.1 to N1.9, shedding 20kobo or 9.52percent, while Chemical & Allied Products Plc advanced most from N20 to N22, adding N2 or 10percent.

In 3,937 deals, equity dealers exchanged 410,386,365 units valued at N5.984billion. Dangote Sugar Refinery, Union Bank, Transcorp, GTBank and Custodian were most traded stocks.

“Unrelenting pressure on general price level may continue amid FX market divergence and structural challenges. Recovery in the local economy will be sustained with first-quarter (Q1) 2021 GDP expected to show further improvement”, the analysts said.

Lagos-based Vetiva research analysts who noted that the Nigerian bourse was characterised by mixed sentiment last week due to sell pressure which persisted on the back of weak economic indicators as well as cheap valuations and attractive dividend yields in the banking space that spurred some “Buy” interest towards the end of the week, also said that with the expectation of further uptick in yields on short-dated instruments in the Fixed Income (FI) market, they anticipate further pressure in the equity market in the near term.

Coronation Research analysts in their March 23 note who said they benefited from the recovery in bank stocks last week, with “our notional position in Zenith Bank”, said they made notional sales of stocks to bring their notional cash position to slightly above 30percent.

This week, Coronation Research intends to continue to make notional sales of bank and industrial stocks to bring “our notional cash position to over 35percent with an upper target of 40percent if liquidity is exceptionally good”.